"Europe is difficult to understand for the markets. They work in an irrational way sometimes," Lagarde told RTL radio.

It appears that the difficulties in comprehension are mutual, since European economic policymakers don't seem to understand markets either.

And journos don't get either.

I can't figure out who created the myth in lender countries and Germany especially that the EFSF means a transfer of tax dollars, rather than lending. But that sentiment seems central to the parliamentary resistances to the scheme which in turn seem central to the motivation of Merkel & co in blocking action.

It is a transfer of tax money. The EFSF is a glorified (and, more importantly, legalised) pyramid scam, where the peripheral countries are loaded with ever increasing volumes of debt, at unpayable interest rates and subject to conditionalities that virtually guarantee that their ability to pay will be reduced. Lending money to a pyramid scam is the same thing as transferring that money, because you're never gonna see it again.

It's just that the beneficiaries are the German banks, not the Mediterranean countries.

Especially because we're now told that neither Greece nor Ireland are being allowed to borrow from the EFSF to buy back their bonds. And also, because the EFSF is supposed to lend at penalty rates of interest.

There is some debate as to whether the EFSF violates the "no-bailout clause" of the Eurozone. These rules are an attempt to make it possible to argue that it doesn't. But by not violating the "no-bailout clause" the EFSF also solves nothing.

Effectively, the only legitimate use of ESF funds to a recipient country is to pay the interest on bonds, which are mostly from EMU banks, at rates that cause these countries to increase their debt and under conditions that cause these countries to be ever less able to make the payments. So the "no bailout clause" combined with the "no repurchase of bonds at a discount clause" do one useful thing: the clearly show that the whole process shows that the mechanism is a means of laundering the transfer of money from various central banks to private banks sufficiently that it slips past most EPP and PES members.

Why not just call the ESF and associated rules what it is: Bailout Laundering.